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Economy slows on sluggish exports

The growth of the German economy slowed to 0.3 percent in the third quarter on sluggish exports, official data showed on Thursday.

Economy slows on sluggish exports
Germany reported sluggish growth from July to September. Photo: DPA

German gross domestic product (GDP) expanded by 0.3 percent in the period from July to September, slower than the 0.7 percent recorded in the previous three months, the federal statistics office Destatis said in a statement.

"The positive impulses in the third quarter came exclusively from within Germany," the statisticians explained.

"Private household and public spending were somewhat higher than in the preceding quarter. And investment in equipment and construction also increased
compared with the second quarter," the statement said.

"By contrast, the trade balance put a brake on GDP growth. While imports continued to rise, exports showed little momentum compared with the preceding quarter," Destatis said.

Germany has come under heavy fire recently, from both its European partners and the United States for its strong trade surplus.

Both Brussels and Washington have suggested that Germany's strong economic performance is a result of its excessive dependence on exports at the expense of home-grown products in its crisis-battered EU neighbours.

The EU Commission in Brussels announced on Wednesday that it would scrutinize Germany's persistently high trade surplus to see if the country was doing enough to rebalance the eurozone economy as a whole.

But the German government and companies insist the country's competitive prowess is the fruit of deep and painful economic restructuring undertaken a number of years ago and other countries must go down the same path to get their own economies in order.

"Obviously, no one will seriously ask the Germans to export less or to close their factories for a long 'eurozone rebalancing vacation'," said ING DiBa economist Carsten Brzeski. "Neither will the Commission ask German companies to become less competitive."

The latest trade data suggested that Germany's high surplus stems from strong demand from outside the eurozone.

"With the rest of the eurozone, Germany's trade balance is already in balance," Brzeski said. "In our view, it is not about the exports as such but about what the Germans do with these surpluses. Investing it abroad has not been a successful strategy. Therefore, stimulating domestic investments could be the missing link, pleasing both the Germans and the European Commission," the expert argued.

Other analysts did not appear overly concerned by the noticeable slowdown in third-quarter growth.

"While the overall level of growth may be disappointing, the mix of components looks strong," said Berenberg Bank economist Christian Schulz. "Domestic demand remained the key growth driver, with machinery and construction investment stronger and public and private consumption rising," the analyst noted.

"The outlook for Germany remains strong, in particular for domestic demand," Schulz said.

Consumption was supported by a strong labour market, rising wages and low inflation.

Public sector could also increase with infrastructure spending featuring in the current government coalition talks, the expert suggested.

Economy Minister Philipp Rösler said the new third-quarter growth data showed that the German economy "is continuing to grow solidly, driven by a robust labour market and domestic demand."

READ MORE: Cost of living slows to three-year low

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ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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